Digital Product Architect

How do you know whether a product idea is going to succeed if you build it and take it to market? If you’ve ever been part of a startup, or if your organization has launched a new products, you know how precarious the effort can be. Sure, there is Lean methodology for discovering product-market fit, but that is a step that necessarily should come after researching and validating your market. Lean is only going add efficiency to your process if you’ve started with a solid understanding of the market and built your starting hypothesis upon that understanding.

To that end, my co-author and I from the book The Smarter Startup, have created a couple resources that should prove useful. The first is a conceptual model called the 6 Market Dynamics. Here we identify the criteria that must be considered when studying a market: The customer, product, timing, competition, financing, and team. Each of these aspects should be studied to evaluate viability of the market and your ability to create value and to be competitive.

Let’s start with the goal of identifying market opportunity. What we’re really looking for is some inefficiency in the market which suggests that customer needs or desires are not being satisfied. Or put another way value, defined as benefit minus cost, is not being delivered efficiently to the customer. By walking through each of these market dynamics we can start to get a sense of whether the market is efficient and whether our available financial and team resources will be adequate to bring more value to the market.

We have also built a more actionable analysis tool called the Startup Scorecard which introduces 3 heuristics for each of the 6 market dynamics. Heuristics are applied guidelines that are used in a subjective context, where empirical principles may not be practical. They’re most commonly known in the fields of HCI and User Experience design as demonstrated by Jacob Neilson’s Usability Heuristics. The Startup Scorecard provides a similar framework for validating market opportunity in consideration of 6 market dynamics: the Customer, Product, Timing, Competition, Finance, and Team. We’ve defined 3 heuristics for each market dynamic, as a means for assessing the viability of an opportunity across each of the 6 market dynamics.

Using the Startup Scorecard, assign a letter grade (A-F) for each of the 6 market dynamics represented on the scorecard, based on your evaluation 3 heuristics provided for each market dynamic. This provides a practical framework for evaluating opportunity and identifying strategic weaknesses which may signal market difficulty. The beauty of this approach is that a lot of difficulties that you may identify through Lean iteration can actually be identified very early on, just by spending a bit of time to evaluate the market strategically. there are also longer term challenges that may not even be apparent during product-market testing that will show up here (such as timing and imminent market consolidation).

Conclusion
The real benefit of tools like the 6 Market Dynamics and the Startup Scorecard is to have an objective and holistic set of criteria by which you can take a critical look at a startup or opportunity, rather than relying on instinct or a couple disparate pieces of advice you’ve gleaned from discussions or blogs – and hopefully avoiding the trap of Lean testing endless ideas or ‘pivots’ that you could have much more efficiently validated before writing a single line of code.

As the hype around Lean Methodology dissipates, and the tool settles into to its rightful place in the Product owner tool belt – its important to remember that Lean is a terrific tool for taking a hypothesis and developing Product-market fit; but it is not a reasonable replacement for strategy or basic market research. Hopefully the tools we’ve introduced here will help Product owners more easily step through those perquisite steps in the process.

These tools are made available and free to use under a Creative Commons license. To learn more about the Smarter Startup Framework and other related, please visit SmarterStartup.org.

Why is it that some products take off while others fall flat? There are many tactical reasons we can point to such as timing, competition, or product-market fit. Fundamentally though, there is one consistent truth regardless of the reason we may determine: some products create value for the market they’re serving, and some simply do not.

Ask yourself whether your product addresses an unmet need or desire. There are two ways to address this problem – outside-in, or inside-out. Lean process has earned a lot of well-deserved accolades in recent years for it emphasis on working with customers and stakeholders to understand their logical needs and how best to solve them. It may not be the best tool for breakthrough visionary products however, as Steve Jobs once suggested at when he said “It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.” Howard Schultz from Starbucks also eluded to this when he said “If I went to customers and asked them if I should sell a $4 cup of coffee, what would they have told me?”.

When seeking to develop breakthrough visionary products, the opposite approach (inside-out) can be more effective. By looking at where existing demand (and competition) is and strategically forecasting where opportunity should be if you were to extend the value complex of an existing commodity product. This approach is reminiscent of the Value Innovation approach described in Blue Ocean Strategies.

To provide clarity on this latter (inside-out) approach, I created a conceptual model I call the Value Creation Plane. It can be useful for understanding the types of value creation and can be used for analyzing where value is currently being created in a given market and projecting how to extend that value in a meaningful way.

The Value Creation Plan

The Value Creation Plane starts with 2 spectrums that are juxtaposed on a Cartesian Plane. The X axis represents the Business Function spectrum, with Monetization (yield and asset management) at one pole and Innovation (technology, UX, etc) at the other pole. The Y-axis meanwhile represents the Perceived Value spectrum. At one end of the Perceived Value plane is Entertainment (Emotional Value) and Productivity (Logical Need) is at the other pole. When we lay these two spectrums perpendicularly across a flat plane, we end up with four quadrants that represent the four positions a brand could take in creating value.

How is this useful? Consider the scenario where you want to enter an established market but you want to innovate the market by taking it to the next level as Apple or Starbucks did. You’d start by identifying the quadrant where the majority of the competition resides, and then determine how you can transcend to another quadrant, thus providing new value. The Value Creation Plan is a simple planning tool that will make this process easier.

Apple Example

In the case of Apple, they created new value around a boring commodity market for computers that focused entirely on quantifiable metrics of value such as Megabytes and CPU speed. Apple created new value atop this commodity market by taking what had been squarely in the bottom-right quadrant and shifting to the upper-right quadrant by appealing to emotion through design and user experience; something sorely lacking from the computer market until then.

LinkedIn Example

LinkedIn is another intriguing example. Social networks like Facebook already existed and were thriving in the upper-right quadrant, but LinkedIn applied the concept of social networking to something more logical and productive – business networking. As such they leveraged the effectiveness of social networks but in a way that created new and non-substitutable value for those who needed a more logical and practical application. Consequently they thrived even as Facebook dominated and while other social networks collapsed in Facebook’s shadow.

Starbucks Example

Starbucks meanwhile took the coffee commodity market (bottom-left quadrant) and shifted to the right. They created a premium version of the commodity product and then built an entire value complex around it. If you are looking for a remote office to get some work done, you now have a table, WiFi, and an electric outlet. Or, if you’re looking for a place to socialize on a Friday evening, you can buy a Carmel Macchiato in lieu of going to a bakery for a pastry. And because of all of this additional value, the use case fundamentally shifts from simply needing a cheap/quick coffee infusion, to rather satisfying other use cases of productivity and socializing, and as such, they’re able to capitalize on coffee without being anchored to the commodity at its core (coffee).

Conclusion

At the end of the day, the only products that matter are those that introduce additional value to their respective market. The best way to ensure you’re generating such value is to focus on addressing an unmet need or desire. If you’re philosophically aligned with this fundamental truth, then you’re already ½ way there. As for the rest of it, consider the type of opportunity you want to go after and whether the outside-in or inside-out approach is the best for defining your initial product vision. There may even be opportunities to combine these approaches, though pursuing a breakthrough visionary product will probably require strategizing a bit deeper and developing your prototypes to a more production ready state before engaging customers.

What are the keys to startup success and how can you know if a startup is likely to succeed? A study by Inc Magazine and the National Business Incubator Association found the failure rate to be as high as 8 in 10 businesses, so it is a worthy question to ask before investing significant time and resources into your new venture.

After years of researching this question with Dr Zhang, my co-author from The Smarter Startup , we developed The Startup Opportunity Scorecard. It is a simple tool for evaluating startup ideas against a set of startup heuristics, to ensure you’re accounting for the important dynamics that drive startup success. We’ve defined 18 heuristic principles that are based on generally accepted best practices, and grouped them into 6 major areas upon which a startup is scored:

1. Customer – Always start by identifying a prospective customer and an unmet need or desire, that the market has not sufficiently addressed. What can you provide that is so meaningful that someone will gladly pay you for it? Ideally the customer you identify will represent a market that matches your own needs and ability. If you’re well funded then likely you’re looking for a large scalable problem to solve. If you’re a solo bootstrapping entrepreneur, a less scalable niche opportunity is more likely to bring you success as you can service that niche with a lifestyle business, and not worry so much about getting pushed aside by well-healed competition. Think both in terms of satisfying a need and whether this is the right size market (segment) for you to address.

2. Product – The product you’re creating needs to directly answer the unmet need or desire of your customer. Stay laser-focused on solving that problem and don’t ambiguate the solution with a lot of additional features or messaging that confuse or dilute the value of you’re providing. As you begin to design your product, stay vigilant against anything that could represent a barrier to adoption such high switch costs, a steep learning curve, or a lack of integration with workflows the customer may already be using. The costs (monetary, learning curve, disruption) all need to be low enough that there is still a net value to taking up your solution, compared to the nearest alternative (value = benefit-cost).

3. Timing – Every market has a lifecycle and every opportunity thus has a limited window of time before it expires. In the beginning of a new innovation, markets are easy to enter and a technical solution is the primary challenge – anyone who can solve the problem can find opportunity. Conversely, there is also a risk in being too early to a market since chasing unproven markets can lead to dead ends, or worse, a viable opportunity that will not bare fruit for years to come; a much longer ramp than most startups can finance. The typical startup is best served with a “fast follower” strategy where by you identify new interest by a set of customers that is already occurring but is still early enough that the need or desire for the solution is not yet satisfied.

4. Competition – It is the imbalance of excess competition compared to new customers entering a market that make a mature market turn unfavorable for new entrants – this is the dynamic usually seen in the latter half of an innovation’s lifecycle and why we prefer to focus on newer market opportunities. What we’re looking for is indication of market inefficiency – that a market has not yet sufficiently met the (potential) need or desire for a solution. New or fragmented markets for example, or old stagnant markets that are ripe for disruption. In such a market you’ll have the opportunity to develop a differentiated positioning strategy.

5. Finance – How much up-front investment of capital (sunk cost) will this product require to develop? Do you anticipate large gaps in time between accounts payable and accounts receivable (working capital float)? Both of these scenarios represent financial risk that you need to weigh against the potential benefit you’re anticipating. Every business requires money to get started but the goal should be to minimize the risk / cost where possible, and to weigh those burdens against the potential for returns. Think of this in terms of building an efficient investment machine – our goal is to achieve maximum output (profit) with the minimum possible inputs (risk and cost).

6. Team – If this is competitive warfare, how confident are you that your team can win the battle? Assuming you have limited resources, you should opt out of any battles you are not confident you can win, and preserve them resources for later opportunities. Someone on your core team needs to intimately understand the nuances of the customer you’re addressing, if you are to solve their need or desire. You’ll also want a technical expert on your team who can devise a well-crafted product that answers the need. Consider also whether you have access to favorable sourcing and distribution relationships you’ll need to remain competitive.

With these six dynamics in mind, take a moment to grade the opportunity using the Startup Opportunity Scorecard. Give it an A-F grade for each of the above criteria, using the following scorecard as an example:

The power of such a framework is that it provides a holistic vantage point from which you can assess an opportunity before jumping in with both feet, rather than simply following your instincts and succumbing to your own blind spots, or listening to a wise maxim that turns out to not apply to your situation. By going through this process and objectively evaluating an opportunity, you can often identify weaknesses and perhaps even predict the reason your startup will fail, before you begin. If you are able to focus your efforts on only the battles you are most likely to win, then you’re already one step closer to winning the war.

Los Angeles hosted its first ProductCamp this month and by all accounts the event was a success! Despite being held on the rainiest weekend in 3 years, we had a full house 200 digital product managers and entrepreneurs join us. The event was jointly hosted by Shopzilla and Fandango who share a floor in West LA and organized by the Product Managers Association of Los Angeles (PMA.LA), the local professional organization for digital product professionals.

What is ProductCamp?

ProductCamp is an “unconference” event modeled after Bar Camps that have become popular in the Silicon Valley tech community. The concept with a bar camp is to bring interested professionals together for a day of networking, and knowledge sharing. Consistent with other unconferences, ProductCamp is a free event for interested professionals who come together for a Saturday to share what they know. The format has become rather popular and has spread to just about every major market in North America and Europe. That’s why it is so surprising that Los Angeles, the second largest city in the country, still didn’t have a ProductCamp, until now!

How Does it Work?

Unconferences are intended to be an event “of the people, for the people”, meaning members of the community propose topics and the community votes on who is going to speak.

In many of the events such as ProductCamp Silicon Valley, an attendee is given a page of stickers at morning registration and asked to vote on the proposed session wall. During morning general session, the team quickly counts the votes and schedules the remainder of the day based on vote count. The result is something of a hybrid between a casual meetup and a formal conference.

Why it Worked?

There are a few reasons why ProductCamp.LA worked well. First, the PMALA is a free professional network of 900 digital product professionals and was able to leverage these connections to both get the word out as well as to attract quality speakers for the day. We also made a conscious effort to pre-plan as much of the event as possible. We proactively invited people we knew would be great speakers. We used online voting a couple weeks prior to the event to cut down on day-of chaos and also to ensure every speaker had sometime to prepare their session, knowing they were going to speak. We also took an added effort to stream as much of the event as we could, which allowed us to reach many of the folks on our waitlist.

What’s Next?

The PMA.LA plans quarterly meetup events around Los Angeles, which are hosted by digital product companies around town and the next one will be in early June. Anyone interested in joining our community should signup at www.pma.la to be notified about the next event; this is also the best way to learn about next year’s ProductCamp which we’ll begin planning this Fall. Anyone interested in volunteering or hosting a PMALA meetup event can contact us directly at web@pma.la.

Thank you so much to the digital product community of Los Angeles for helping us make ProductCamp.LA a success. In just a single event, we’ve put LA on the digital product. It is our hope that this is the beginning of many positive steps toward a more product centric approach to digital technology and media here in Southern California.

What is likely to happen if an engineer starts a consulting business? What if the person were in business development instead? I’ve seen this story play out more than a handful of times and the pattern has become predictable. To illustrate the outcomes, I’ve written a fable:

Once upon a time, there once was a talented engineer who was outstanding at his craft. He had a degree from a top school, was passionate about technology, and proud of being a top-notch engineer. He would spend his free time learning the latest techniques and enjoyed being the subject matter expert at work. One day the engineer was in a meeting with a vendor in which he realized that he could be making a lot more money as a consultant than remaining an employee. So he struck out on his own and began a small consulting firm, marketing his services to local companies who could benefit from his expertise.

Around the same time and on the other side of town, a business development professional was sitting in a similar meeting and came to the same conclusion that he should start a consultancy of his own. He also went to a good school and was good at what he does, but he did not possess the engineer’s passion for technology, nor did he spend any time learning the latest techniques or technology trends. Instead, he was much more interested in staying connected with people he had met, hearing what they were up to, and learning about how to raise money – something he found much more exciting. To start his new business though, he needed help from an engineer. Because he is good with people and skilled with sales, he was able to coax one of the junior developers from his firm to come him on this new journey.

This is the classic story of the Artisan and the Opportunist. The Artisan is a skilled crafts-person who knows the work better than anyone else, whereas the Opportunist may not know or care about the work itself, as they’re focused on building the business and sales. Both have strengths and weaknesses they must contend with. Which entrepreneur is more likely to succeed?

In the beginning, the Artisan will likely struggle with a lack of network connections to call upon as customers. His top-notch trade skills may eventually lead to a great reputation that minimizes the need for him to do sales, but that assumes he ever gets off the ground to begin with. The Opportunist will likely have an easier time generating early deal flow since he already has a deep network and know how to work those connections. The Opportunist also benefits from distribution of labor since they can focus exclusively on developing customers while someone else does the work.

Fast-forward two years. Assuming the Artisan was able to hang in there, he’s presumably established a great reputation now and enjoys more work than he can handle. He has even brought on a couple other high-end engineers to help him yet he struggles to fully delegate to his team. And because his business is built on a few personal connections with vendors, his clients all expect him to personally oversee their project. Even if he wanted to fully delegate to his team he couldn’t because his clients want him personally overseeing everything.

The Opportunist meanwhile has their own successes and challenges after the first two years. Because they have so many more connections, they’ve built a broader and more diversified customer base rather quickly. The Opportunist does not want to turn down any client that he’s worked to build and so they hire engineering talent quickly to cover the demand. And because the Opportunist is mindful of profits, he continues to hire junior level talent to maximize profit margins.

As a result though, the Opportunist’s company is developing a reputation for low quality work, which is starting to hurt them, and internally they’re beginning to buckle from growing so quickly and not taking the time to sort out proper systems to manage the throughput or methods to manage quality of output. Their talent gets frustrated by the internal chaos and lack of opportunity to do good work or grow professionally. The company develops a problem with high turnover, which creates an ironic feedback loop, eroding those higher profit margins and further contributing to their quality issues.

The inevitable outcome for either of these businesses is less than ideal. The Artisan’s biggest challenge was finding those first clients but if he overcomes that challenge, then he’s likely to go on to build a nice lifestyle business for himself. But because he’s so busy doing the work, he’ll struggle to ever build a business of significance and thus is unlikely to ever grow beyond a couple assistants. The Opportunist meanwhile is more likely to build a business with real profits and something they could sell for a nice profit a decade or two later, but with a higher risk profile. They’re dealing with the mid and lower range of the market where they’ll see higher margin compression as those lower-end engineering skills inevitably commoditize. And because profitability is predicated on constant deal flow, any disruption to that flow such as a recession could be fatal.

Neither the Artisan nor the Opportunist will reach their fullest potential if they only play to their own strengths and ignore their weaknesses. The Artisan must embrace the Opportunist mindset and spend more time building a business rather than just doing the work. The Opportunist needs to temper the impulse to grow quickly with some attention to detail or the very growth he’s succeeded to create may become precise his onw undoing.

Imagine though what would be possible if the two worked together to create a meaningful sales pipeline around a position of quality. They could build a dominant brand in their industry – one where reputation reinforces sales efforts, engineering talent is easier to recruit and retain, and higher-end projects in a premium segment of the market, where margin compression and market volatility are less of an issue. Like so many things in life, balance is key to building a thriving and sustainable business.

Why are some entrepreneurs luckier than others? You are not imagining it-some people truly do have better, more predictable outcomes than others. Some serial entrepreneurs may have several successful hits in a row, and others may struggle through several businesses and never get traction.

The popular thought is that if you work hard, you will succeed. This may be true for many smaller service businesses–an accounting firm, say, or a dental practice–since there isn’t a lot of mystery about market timing or product-market fit. For these businesses, the model is well defined and there are numerous predecessors that serve as models. For innovation-driven businesses, however, the outcome is much more uncertain. You can work hard, but you may not succeed. Even more vexing are stories about reluctant entrepreneurs who succeed despite themselves.

Clearly, there is more to the story than simply working hard. The key appears to be your ability to encounter and recognize opportunities. In a 1999 psychology experiment at Harvard University known as “Gorillas In Our Midst,” Dr. Daniel Simmons asked a number of study participants to watch a group dribbling basketballs and to count the total number of times the balls were dribbled. Halfway through the video, a six-foot tall man in a gorilla suit walked slowly through the spectacle, stopped in the middle, and pounded his chest a few times, before walking away. Afterwards, the study participants were asked who saw the gorilla. Surprisingly, more than half of them did not.

A later study by European Sociologist Dr. Richard Wiseman expanded on this research in a book called The Luck Factor. In Wiseman’s seminal study on the subject, he asked a group of participants to count the number of images inside a newspaper. They were given two minutes to complete the exercise, and most people used the full amount of time given to count and doublecheck their answers. A couple of participants however confidently completed the activity within mere seconds, both of them having the right answer. It turns out that, on page two of the newspaper, Dr Wiseman had taken out a one-half page advertisement that read, “Stop counting. The answer is 43. Tell the experimenter you have seen this and win $250.”

These studies illustrate a concept called inattention blindness. When we’re too focused on solving problems, we often do not observe the opportunities right in front of us. Ironically, the answer to improving your luck, then, is not working harder-it actually might be the opposite. If you find that you are always doing “heads down” work and frustrated that you’re not reaching your goals, it may be time to turn off the computer and go to an industry networking event or mingle with your customers. Have a drink and engage in conversation. Not only might you have the opportunity to reframe the problem in a way you hadn’t thought about before, you might even make a few connections who can help you reach your destination a little faster.

When you are trying to innovate and create new opportunity, it is important to be able to step back to see the big picture. Sometimes, it is only when you’ve stepped back and stopped thinking about the problems you’re trying to solve that you can see things from a new perspective. So don’t forget to take a little time to step back from productive work. You might feel guilty, but it could be the only way you’ll see opportunity right under your nose.

A lot has changed since the release of Apple’s first iPhone in 2007. We have witnessed a profound shift in user behavior, away from desktop computers in favor of new form-factor devices. The enabling technology has also brought about an entirely new class of Web-enabled applications and architectural ideals. Meanwhile, monetization opportunities that capitalize on these changes are appearing. It is from a confluence of these changes that we assert Web 3.0 has begun.

We will support this assertion by looking at the types of changes that occurred during the Web’s previous era to support labeling that Web 2.0. We then apply those criteria to show how comparable changes are once again occurring, thus justifying the acknowledgement of an entirely new generation of advancement on the Web. Let’s start with a close look at Web 2.0.

In the opening remarks of O’Reilly’s first Web 2.0 conference in 2004, Tim O’Reilly and John Battelle defined Web 2.0 as “Web as a platform,” in which software would be built upon the Web rather than as a desktop application [1]. In response to this idea, Jesse James Garrett wrote an essay a year later in which he coined the term AJAX (Asynchronous JavaScript and XML), popularizing a client-side technique that became accepted best practice for implementing O’Reilly’s vision of the Web as a platform.

Concurrent to these technological revelations, use patterns online were also changing. With the rising popularity of social sites such as Friendster and MySpace, users were starting to contribute to the Web’s content, in contrast to previous, more passive use patterns in the Web 1.0 era. Blogging was also gaining in popularity, driven by the introduction of WordPress and Google’s popular AdSense network in 2003. Eventually this explosion of social sharing via profiles, articles, comments, and conversations would culminate in what Facebook would later, in 2007, call the social graph.

Interestingly, there was no single innovation that completely represents Web 2.0, yet most agree it was a pivotal time. Reflecting upon the above statements, we identify three significant forces that converged around 2004. Specifically, there was a convergence of new technologies, new user behavior, and new monetization opportunities. Table 1 compares the three generations of the Web from this multifaceted convergence.

To make the case that Web 3.0 has begun, let’s discuss the enabling technology along with new use patterns and monetization factors that have arisen in the past few years.

Emerging Technology

Whereas Web 2.0 could be technologically characterized by the proliferation of Web services, one could argue that Web 3.0 is characterized by a proliferation of new form-factor devices, leading to new use patterns of the Web. In 2007 Apple introduced the iPhone, which would become the transformative device of its generation. In 2010 Apple released the iPad, which at a technical level is merely a larger version of the iPhone, but which evolved its own use patterns when introduced to consumers.

Concurrent to these activities, Google had been developing Android, which provides an open source alternative to Apple’s higher-priced devices. Hardware developers such as Samsung and HTC have developed popular lower-cost devices that leverage Android and provide a significantly lower-cost commodity alternative, which is helping to drive quicker adoption of these new form-factor devices. In fact, the rate of adoption for these devices is occurring so quickly that sales of them are now higher than that of traditional desktop computers.

There is significant anticipation among technologists and investors alike that a fourth new form factor will soon take hold, the Internet television. Many in the media are anticipating the release of such a device later this year, pending the resolution of licensing issues with the pertinent media companies. In anticipation of this, venture capitalists such as Marc Suster, who is investing in Los Angeles-based entertainment companies like Maker Studios, believe that television is ripe for innovative disruption. If they are right, this could emerge as yet another significant new form-factor device, representing another use pattern.

Another hallmark of a new Web era is the type of applications running on these new form-factor devices. Unlike previous Web applications, which were typically thin-client applications, we are seeing the reemergence of thick-client architecture for specific-use apps. In this context, rather than loading an HTML interface from a remote server, a device launches a native application that runs locally, providing a significantly improved user experience. The native app still utilizes stateless remote Web services, but state persistence and intelligence about location and user interface behavior—the true application logic—occur within the local native app.

The mobile Web is also making strides toward thicker-client applications. HTML5 has standardized the implementation of geolocation awareness and local persistence storage, enabling an HTML-based document to now manage its own session state and geo awareness, rather than needing to defer to the server to manage application-level functionality. The inclusion of the vector canvas further enables HTML5-based applications to create rich user interfaces and data representations without needing to call back to the server.

Microsoft’s new Windows 8 operating system takes notice of the power of HTML5 and now allows developers to create first-class HTML5/JavaScript-based Metro panel apps. This reflects the rise of technologies such as PhoneGap (Apache Cordova), which enable the compiling of native apps written with Web-standard HTML5 and JavaScript technology. Regardless how it is built, the trend is still the same—a thick-client application that relies upon thin stateless Web services, a clear departure from the thin-client architectural idealisms of only a few years ago.

Another significant technology that has influenced this new generation of Web use is the geolocation ability of the devices. This technology has given way to an entirely new class of applications that has substantially influenced use patterns and emerging monetization opportunities.

When cellphones began to include GPS capabilities in favor of the older triangulation method, it dramatically improved the accuracy of location awareness and opened the potential for real-time location updates being used for commercial purposes. When the iPhone introduced a meaningful software platform along with this potential, an explosion of location-aware software applications could begin.

When HTML5 was introduced, it included a provision for a geolocation API that Web browsers needed to implement, giving even HTML5-based applications the ability to be location aware. Most commonly, services such as Skyhook Wireless implement this by looking up nearby wireless access points and cross-referencing them for location data. It is also suspected that Google collected such geo-referenced Wi-Fi data while driving its cars around to take photos for the Street View service, thus providing another source for geolocation lookup.

New Use Patterns

As a result of the massively disruptive innovations that have taken place with emerging technology, users are no longer bound to their desktops in order to use the Web; the online advertising industry has started referring to this phenomenon as the “four-screen user” [3]. They are looking for opportunities to stitch together the entire user experience across numerous devices, both synchronously and asynchronously.

We continue to see increasing splintering of activities across our four devices, commensurate with the nature of those activities. Productive work and research are still primarily performed at a desktop device, but our phone is now frequently used for looking up location-based information, such as maps to nearby stores or houses for sale. When the iPad was launched in 2010, it introduced a new form factor that immediately appealed to the household for casual Web surfing, sharing photos, and other activities characteristically performed from the couch. And of course there is the much-anticipated Internet television, which seems poised for imminent release.

The introduction of new form factors surely will not end with the completion of Apple’s i-series of products, either. There are many apparent extensions of this proliferation of Web activity further into applied devices. Products have already been introduced that enable control of your home’s heating and lighting from a Web application, and industry thought leaders have begun talking about Web-enabled machines that are self-aware of efficiency and the need for repair.

Another meaningful trend we have observed in the past five years is the growth of context-specific applications. What arguably started with API mashups in Web 2.0 has matured into very useful apps that leverage specific meaningful segments of the Web for a specific purpose. For example, one click on the weather app on your mobile phone or tablet and you can see information about today’s weather, without ever needing to open a Web browser or enter your location. Or you can get directions to a destination based on your current location.

Beyond location, applications are learning our preferences and adapting accordingly. Google, for example, has begun factoring our search preferences after observing search results we click and recommendations made by others we are socially connected to via our Google+ accounts [4]. While this is a natural evolution in its service at some level, the fact that we’re using devices that maintain state for us means we no longer need to log in to those applications when we navigate to them. Instead, we merely click the search button on our device and the personalization of our results happens automatically.

Apple’s introduction of Siri with the release of the iPhone 4S was an interesting increment as well toward Tim Berners-Lee’s vision of intelligent machines that understand the Web and perform actions on our behalf. It is a spin-out from the SRI International Artificial Intelligence Center, and is an offshoot of the DARPAfunded CALO project. After you issue a verbal command to the phone, Siri will process your request and respond by either answering a question or taking a requested action, such as initiating a phone call, setting an appointment on your calendar, or playing music.

Enabling Monetization

Perhaps what has driven the rapid innovations of the Web more than anything else is the potential of generating profit. In Web 2.0 this was manifested by well-funded ventures seeking to capture a market share in the social ecosystem, which would enable monetization on a large scale as a media portal, as well as bloggers figuring out how to monetize their own content through Google’s AdSense network.

The acceptance of “Web as platform” also unlocked the potential for subscription-based online software as a viable alternative to the up-front licensing of a traditional software product. And indeed, those three areas where new monetization opportunities were present are where the majority of the innovation occurred during Web 2.0. In Web 3.0, we see an entirely new crop of monetization opportunities emerging, as we will discuss here.

The app store is a new monetization vehicle that has arisen in the past five years and has fueled much of the development of mobile devices. The Apple App Store began a new era of monetizing software as a product. It allows third-party developers to create extensions (apps) that take advantage of Apple’s platform and sell them into a marketplace that is prominently positioned for the users of the platform. The concept has been profoundly successful; the store now boasts more than 900,000 apps.

The idea of an app store has caught on with competitors and in other verticals as well. Google Play Store is the analog for the Android ecosystem (and now offers as many apps as the Apple App Store), and Microsoft recently launched its own app store for Windows 8. For B2B platforms, Magento has the Connect marketplace to extend its ecommerce platform; SalesForce introduced Force.com, facilitating extensions to its core cloud services by third-party developers.

In an effort to provide “frictionless” checkout opportunities for customers, physical stores are beginning to leverage mobile-based solutions to enable easier checkout. Companies like Starbucks are now offering the ability to make a purchase by simply tapping “pay here” or by scanning a QR code displayed at the point of sale. The system works with Square’s eWallet program, which links directly with the customer’s credit or debit account.

It is an interim solution, however, that companies like Square aim to improve. In an interview with CNN, Jack Dorsey, CEO of Square, said that their plan is to eventually not even require the user to take their phone out of their pocket. The user would merely say, “I’m Laurie, and I’d like a cappuccino,” the proximity of the device would be detected, and her account would be charged in the background [5].

The one issue remaining for mobile commerce is how to simplify making purchases online, since the small screen and lack of keyboard make it prohibitively difficult to complete a long checkout form. Though this remains a problem at the time of this writing, a solution will inevitably come as a result of this foray into mobile commerce.

The increasing amount of time that Web users spend on new form-factor devices is creating a challenge for content creators, who are finding that their content does not monetize as well through these devices. According to Mary Meeker of Silicon Valley-based venture capital firm Kleiner Perkins, the effective CPM (cost per 1,000 impressions) for mobile devices is five times lower than that of the desktop [6]. Not all devices are created equal, however, with tablets generally delivering higher eCPM rates than phones. Nonetheless, the point remains that the ad-banner and paid-click advertising models may not best fit the use patterns of these new mobile devices. Where one window of opportunity closes, however, another opens.

Geo IP fencing is one such opportunity that takes advantage of hyper-local targeting to serve ads relevant to your physical context. Whereas Google had success with AdWords advertising by dynamically placing ads into contextually relevant articles, GEO IP fencing enables the advertiser to specify a physical boundary within which an advertisement will appear, thus enabling ads to appear only when they are geographically relevant. For example, imagine a cafe offering 10 percent off a morning coffee if you come in now. This ad could be shown within 100 yards of its store, enticing pedestrians to stop in and take advantage of the offer.

Conclusion

It has been only six years since the iPhone was first released, which set into motion many of the changes we have discussed. It is difficult to grasp the extent to which the Web has changed in such a short period of time. When reflecting upon all of this change, one has to wonder if it is sufficient to declare that an entirely new generation of Web innovation has occurred since Web 2.0, and so we sought to answer that question here.

Through reviewing the innovations most commonly associated with Web 2.0, it appears that what defines that generation really comes down to a convergence of three things: new enabling technology, enhanced monetization opportunities, and consequently new categories of products that resulted in new use patterns for end-users. By evaluating these criteria, we observed that indeed a significant transformation has begun that could be described as a generational advancement. And so we conclude, affirmatively, that Web 3.0 has already begun.

Authors

Neal Cabage (nealcabage.com) is a digital product strategist, technologist, and author who has spent years leading the development of online products. He has worked with top online brands, spoken at leading industry conferences, and founded and sold two online startups. He co-authored The Smarter Startup (Pearson New Riders, 2013) and is a contributing columnist for Inc.com.

Sonya Zhang (sonyazhang.com) is a professor at the College of Business Administration, Cal Poly Pomona. She holds a Ph.D. in information systems and technology, an M.S. in computer science, and an M.B.A. Her research focuses on Web development and optimization, eCommerce, and Internet entrepreneurship. She has published in top journals and conferences, as well as co-authored The Smarter Startup.

Imagine you could increase your website’s sales volume by 20 to 30 percent without spending an additional dime on traffic acquisition. And now imagine how much you could grow your business if your margins allowed you a higher cost-per-click (CPC) or cost-per-thousand-impressions (CPM) ad spend to acquire customers while turning a profit. This is the power of conversion rate optimization.

If you’ve never optimized your website’s conversion funnel, there’s a good chance you are paying more to acquire a customer than you should. In fact, it is common to see 20 percent to 30 percent increases in sales volume after optimizing your conversion funnel, and it’s not unheard of to see triple digit improvements in some cases. The idea central to conversion optimization is to make better use of the traffic you’re already paying for. You can accomplish this by looking at your sales conversion funnel to identify points of friction that can be smoothed out, either by better engaging users or by removing bottlenecks where people are getting stuck. The most critical step in the process is to define your customers and to experience your website through their eyes. Once you’re in tune with your customers and able to empathetically identify possible issues, you begin to hypothesize what problems may exist and what would solve those problems.

Once you define your hypotheses and create test scenarios, you can use split A/B testing tools like Optimizely or Unbounce to randomly serve different versions of pages within your conversion funnel, allowing you to test your theories. As time passes, the tools collect more data and run more tests. You begin to better understand what types of changes your customers are going to respond to, and your test design improves. While much of this is specific to your own customers, there are a few fundamental concepts that can drive better testing from day one:

1. Understand Your Customer
Every demographic is different and the ideal conversion funnel would be designed to anticipate the needs and challenges of that group, so you can keep them focused on your goal of completing a sales transaction. A relatively new approach to interface design called User Centered Design (UCD) addresses this need by providing a set of conceptual frameworks for stepping through the process of understanding the customer. With UCD, you would begin by creating a “persona” and then define the scenarios and use cases of how the customer would interact with your system. This will guide you through the process of digging a bit deeper than you otherwise might have and result in the sort of insights that will yield better design decisions.

A persona is a one-page card that concisely defines the typical user in your demographic. In this exercise, you would define the user’s age, profession, occupation, emotional needs, and frustrations. The second step is to create a set of Scenarios that describe the Persona’s external context and what motivates them to interact with your website. For example, if you are selling printer cartridges, you might describe how they just drove all over town looking for replacement cartridges and came home frustrated that no one had the right size. You would then define a set of use cases to state exactly how they might interact with the website based upon a deeper understanding of why they visited the site in the first place. For example, they may go directly to the search field and type in the printer model number rather than navigating your catalog in search of cartridges. This understanding would drive a very different user experience–and likely higher conversions–since it better engage the user in immediately solving their problem.

2. Pay Attention to Page Flow
Look for problems in the flow of your conversion funnel to see if there could be functional issues or some cause for confusion. A great way to test for this is to sit down with a few of your customer prospects and ask them to navigate the website. Give them the goal of purchasing a certain product and then stand back and watch where they get stuck. Sometimes, this is as simple as button placement on the page. Or, you might be asking for too much information, such as requiring users to create accounts in order to buy your product. More concrete roadblocks include not accepting the method of payment that is preferred among your target demographic. It might also be simply a matter of convenience: To make it easy on customers, look for opportunities to reduce pages and steps in your funnel and deliver the customer to the goal point as quickly as possible.

Another great way to identify problems is through the proactive use of a Web analytics tool to identify bottlenecks in your intra-page flow. Using tools such as Google Analytics, you can define conversion funnels that map the sequence of pages that a visitor is intended to flow through, from the initial landing page all the way to the transaction “thank you” page. By properly tracking and visualizing the conversion funnel, you can easily see where you may be disproportionately losing too many people at a certain stage of the funnel. This can help you figure out which pages or interaction events you should be focusing your optimization efforts on.

3. Hone Your Message
The words you choose in your titles, product copy, and especially the semantics of things like action buttons can have a significant effect on user engagement. Much of effective selling comes down to understanding the needs of the prospect and connecting with them emotionally to motivate action. Presumably, we already understand the prospect’s needs from the user-centered research described above, so now its time apply emotional motivation. The core emotions you need to address in your conversion funnel are fear, desire, and complacency.

To address fear, consider how you can leverage your brand’s authority as a market leader if you are one, or how to leverage social proof to decrease suspicion if you are not. Showing the logos of well-known partners or clients can be an effective way to leverage brand credibility of others when you’re just getting started. To address desire, emphasize how close you are to solving an important problem. And for complacency, consider how you may demonstrate scarcity of your product, such that they have a motive to act now. Amazon does this effectively without appearing manipulative by alerting customers when stock is running low and letting them know they can have the book within 48 hours if they order now, but it could take longer if they do not.

4. Take a Tactical Approach to Design
Graphic design is visual communication and can also be a method by which to more effectively engage a user. Simple layout decisions, such as removing the navigation bar, limiting the number of options between which users must choose, and the use of negative–or empty–space around an object can all help hone the user’s attention on the intended item of interest. Making action buttons larger and placing them above the page fold can also have substantial impact on the user’s likelihood to take the intended action. The sorts of tactical design choices are the visual equivalent of the salesman knowing just what to say–and what not to say–at the right moment.

Color is another effective component of visual design. It not only has the ability to draw attention to something, but carries with it the ability to elicit deeply associated emotions and thoughts. Blue and green have been historically important to the survival of the species, since they are associated with food and water. For this reason, blue and green are universally regarded as calming and soothing. Orange is generally regarded as an exciting color, which elicits action and is one of the best colors for converting buttons. Other colors, including red, carry cultural meaning and need to be applied with recognition of the specific audience you are addressing. In western cultures, red is associated with warning and alert. In the Middle East, it is associated with evil. And, in China, it is a lucky color, eliciting the opposite emotion.

The fundamental key to success with conversion optimization is to understand your customers and to commit to a philosophy of ongoing testing and improvement to zero in on precisely what works with them. It is a process, not a one-time tactic, but the impact to your return on ad spend can be significant.

How was Starbucks able to build an empire in just 35 years by charging premium prices for what is essentially a commodity? The coffee purveyor’s legions of loyal patrons seem to find significant value in what it offers, to the point that it has become one of America’s most beloved brands. Others, meanwhile, are perplexed by the fact that someone would pay $4 for a cup of coffee, standing in a long line for the opportunity to buy something that could be created at home for much less. Starbucks founder Howard Schultz has said, “If I went to a group of consumers and asked them if I should sell a $4 cup of coffee, what would they have told me?“

So how does Starbucks pull it off? Because it offers more than just coffee. It prepares premium custom beverages made to your precise order, excellent customer service, and beautiful stores with comfortable chairs and free WiFi. For many, a trip to Starbucks is as much about the experience as it is about the caffeine. For others, it is a matter of convenience-they can always find one nearby when they need to connect to the Internet. All of these things add value beyond the coffee itself, which enables Starbucks to sell one of the World’s most commoditized products, at a significant premium. For those who value these benefits, Starbucks is contributing significant value, well worth the $4 per visit.

Amazon.com is a subtler example of what’s possible when we look beyond the commodity. It is not selling a premium version of a product like Starbucks, nor does it have a physical presence on every street corner. It does, however, contribute significant incremental value beyond that of its competitors. Most of us shop at Amazon.com because we know it has the world’s largest inventory, the fastest shipping, and one of the best return policies. And, because it is now the largest retailer in the world, it also has significant pricing power and is thus able to offer some of the best pricing.

If all of these benefits seem trivial, ask yourself if you would buy from a smaller online store you don’t know much about, even if the product is the same price. Perhaps you have a bias toward supporting the small businesses or the underdog, but that aside, would you pay the same price for a product from a store that has slower shipping and an unknown return policy?

In 1979, Harvard Professor Michael Porter introduced the concept of the value chain, suggesting there are multiple layers to your business, each of which contributes to the total value to your customer. Direct activities, including sales, clearly contribute to revenue, and activities such as IT and customer service provide indirect, long-term value. The presence of all of these services form an integrated value chain that makes some brands more professional and valuable than others. The investments these companies make in their infrastructure cannot only make them more efficient and bring down cost, they have the potential to add value for their customers by improving the purchase experience, reducing risk, and addressing other needs that the customer may have but are being ignored by the market.

Starbucks and Amazon.com have both built an empire around selling commodities, but they invested heavily in the indirect benefits surrounding their offerings, thus providing more value than their rivals. Put another way, their innovation is the value chain they wrapped around the commodity products they sell, not the products themselves. After all, innovation does not always mean technical wizardry or superior craftsmanship–creating a more valuable delivery or purchase experience can be fertile ground for innovation too.

How can you take a page from Starbucks or Amazon? First, you have to appreciate the irony of selling a commodity and yet become so differentiated in the process, that you rise above the commodity trap that plagues so many businesses. Therein lies a subtle, yet crucial, distinction. Everyone in Silicon Valley seems to be “innovating” a technology product, but not many are creating meaningful differentiated value that gives them a leg up on competitors. That is unfortunate when you consider that many technology products become commodities eventually.

The bottom line? If you spend all of your resources innovating a product that is bound to become a commodity, you won’t have a defensible market position down the road. In fact, all of your resources will have been spent fighting a battle you are unlikely to win in the long term, unless your successful at being acquired during market consolidation, which is unlikely. That’s why innovating the value chain around an existing commoditized product, rather than innovating the product itself, is sometimes a better strategy. That’s especially true if you’re entering a crowded space and lack the timing or resources to become a leader when the market matures.

Online marketing is a complex and competitive landscape. Gone are the opportunities to easily drive quality free traffic or to buy traffic for nickels and dimes and monetize it for dollars. It is still possible to make a healthy return on your online marketing spend, but it requires a much more precise and disciplined approach.

In the book The Smarter Startup, I described a three-step optimization model for potentially driving considerably higher returns on your online marketing ad spend. By paying attention to a few important details, it is possible to improve your ad spend returns by 500 percent, compared to what many small business and startups are doing currently. To demonstrate how you can do so, let’s walk through each of the steps:

Step 1: Traffic Optimization
Acquiring traffic is where it all begins. Are you doing it effectively? As described in my recent article about inbound and outbound marketing, “What Online Marketing Strategy is Right for You?” the number of online marketing channels has proliferated in the last few years, but not all of them apply to your business. Every business needs to define its online marketing strategy as fundamentally about convenience and price (outbound) or authority and expertise (inbound) and choose the right channels accordingly. Applying the wrong channels for your business model may work in certain situations, but will eventually lead to frustration and difficulty achieving positive returns.

Assuming you’ve selected the proper channels, you also need to take the time to optimize the use of those channels. Is your message resonating? Are you getting the click-through rates you need? If not, try different versions of your ads until you find a winning combination. Try different messaging, images (if applicable), and targeting (keywords, devices, demographics). Cull whatever isn’t working as you add new testing scenarios and you’ll eventually realize significant improvements. It’s not uncommon, in fact, to double your performance with various marketing channels after spending some time to optimize.

Step 2: Conversion Optimization
Once the traffic arrives, what are you doing with it? Hopefully, you’re sending it to a landing page designed to maximize engagement, rather than to a generic home page. Most sites can achieve 30 percent to 50 percent improvements in conversion rates by systematically testing different versions of landing and checkout pages (A/B testing). But if you’ve not spent any time and are not following the basic best practices already, it is entirely possible you could double your results (or more) here.

When dealing with landing pages, the basic goals are to (a) sell your product or service and (b) remove anything that could distract or deter visitors from filling out your signup form or buying your product. Remove the navigation and ancillary sidebar. Then, provide sufficient in-line information and instruction so the visitor doesn’t need to seek it out. Think in terms of trying to guide kindergarteners on a straight line from point A to point B and you have the basic idea: remove all distractions and tell them clearly what you want them to do.

If you want the user to fill out a contact form, for instance, make the form as simple as possible and don’t ask for any unnecessary of overbearing information. If it’s a purchase decision, give as few options as possible to choose from. And once customers leave the landing page and continue on through a conversion sequence, apply the same logic, keeping users focused and driving them toward the goal as quickly and simply as possible. My column “4 Ways to Turn Visitors into Buyers Online” provides a more in-depth look at conversion optimization.

Step 3: Customer Retention
It continues to amaze me how many Web-based businesses make an online sale and consider the relationship with that customer to be over. The beautiful thing about converting an existing lead or previous customer is that you’ve already spent the money to acquire this prospect and if you’re able to convert them, the profit margins are significantly higher than having to acquire another 50 or 100 leads (assuming your conversion rate is 1 to 2 percent).

Assuming you are a typical business–that is, you have 30 percent net profits and spend the same amount on marketing and customer acquisition costs–the net profit potential of an existing customer is roughly double that of a new customer. If you are able to convince roughly half of your existing customers to buy again, then you’ve effectively doubled your net profits here again.

The Compound Effect
When you take these steps in aggregate, they amplify one another. Let’s say you started by spending $100 to acquire 100 customers and your earnings are $100 from that 100 customers, meaning you’re break-even to start. With traffic optimization, you were able to double your effectiveness, which means you’re now making $200 from the same $100 you spent. And from conversion optimization, let’s assume you achieved 50 percent improvements again, which compounds your results to $300. Finally, if you convinced one half of your customers to buy from you, either by nurturing non-converted leads or achieving a repeat customer, let’s say you doubled the output once again, bringing it to $600. There you have it: the compound effect of efforts to improve traffic quality, conversion rates, and customer nurturing/retention.

Of course, results vary based on a myriad of factors, including marketing assumptions, scaling of sourcing, and fulfillment costs. And the tree steps described above take time and money that aren’t reflected in my admittedly crude calculations. But this simplified example should give you some sense of what’s possible and why minding the details makes a world of difference with online marketing.

As recently as a few years ago, online marketing meant one thing: search marketing. And there were only two flavors of search marketing: search engine marketing (SEO) or paid search (PPC). Today, there are seven distinct online channels that can be leveraged as part of your overall marketing mix: content marketing, social marketing, ad retargeting, paid search, product feeds, affiliate marketing, and e-mail marketing. More channels are appearing every year as companies continue to innovate the online experience. How can a marketer predict which channels will work for them and determine how best to leverage those channels?

To answer this question, take a step away from the details and consider how you would have engaged your customers a hundred years ago. In 1898, advertising pioneer St. Elmo Lewis developed a four-step model for writing effective marketing copy called AIDA. The name is an acronym that describes four steps to convincing someone to buy from you. First, you must get their Attention (A), then build their Interest (I), create Desire (D), and finally, you must inspire Action (A). More than a century later, this model is still useful for demonstrating how the dialog with your customer changes from first introduction to the eventual sales event and how your messaging needs to be different depending on what stage of the process you’re engaging with a potential customer.

Consider how this model applies to your sales conversion funnel and how you would engage customers differently at the four stages of the funnel. Most businesses naturally align with either a “high funnel” or “low funnel” marketing strategy, not both. Is your business one that is more focused on qualification and brand building? Or is your product or service a known commodity for which you’re merely competing on price and convenience? The answer to this question is where you must start to define your online marketing strategy.

In my recent book The Smarter Startup, I introduced the following two marketing models that reflect this difference in high funnel versus low funnel engagement:

Inbound Marketing

If you sell custom services or high-end products, you must expect that your customer is going to do some research to qualify you before they select you as their provider. They may look for reviews on Yelp, ask colleagues for references, or spend time researching online before they decide whom they will contact. The window of opportunity with these customers is high in the conversion funnel, and so you must focus on capturing their attention (A) and interest (I).

The online marketing channels that lend themselves best to engaging this type of customer will reinforce your reputation and demonstrate knowledge and quality. Content marketing lends itself particularly well here. Consider writing articles for popular online magazines and contribute to online conversations where they are occurring. Think about how to enable brand advocates to share your message with their own social and professional networks via social platforms like LinkedIn and Twitter.

Because this type of conversion funnel can last weeks or months, it is critical to stay in touch with your customers to keep your brand top of mind. If you’re engaging them high in the funnel, they’re likely not ready for a purchase yet, but it would be reasonable to request an email address or social follow. This will give you the opportunity to continue sharing your knowledge and commitment to quality as they proceed through their decision process.

You might also consider retargeting ads, which track a visitor’s movement online and can continue to show your ad wherever they go online after they’ve visited your website or otherwise engaged with your online content. These ads are available through many ad network providers, including Google AdWords, and are a great way to stay top of mind.

Outbound Marketing

Outbound Marketing focuses on the lower funnel prerogatives of desire (D) and action (A). Rather than building a brand that demonstrates quality and knowledge, you would instead focus on optimizing the transaction event, driving traffic, and optimizing conversion rates. Your messaging should typically reflect this with time sensitive offers and prices discounts. For the outbound marketer, there is little value in establishing expertise or commitment to quality, since the product is often a known commodity. The goals of outbound marketing thus are to get in front of as many customers as possible and to convert those customers before they leave their website.

The online channels that work best for online marketing are the ones that serve these low funnel prerogatives most efficiently. Paid search (PPC) for example is excellent at pairing specific advertisers with customers searching for something very specific; a signal they may be nearing the bottom of the funnel. Product feeds and affiliate marketing programs, meanwhile, are two vehicles that enable the outbound marketer to get their products into popular product comparison directories, where customers can easily compare product features, and provider prices and shipping.

E-mail marketing can also be useful as a follow-up mechanism, as it is with inbound marketing, though the goal is different and its use less critical. Rather than nurturing a lead by helping them through a long and complex discovery process, the outbound market merely re-markets existing customers with special offers in order to hopefully win additional business.

The bottom line? It is important recognize the purpose of each of the online marketing channels, how it is consumed by the public, and how each one may be vary in efficacy for the message you are trying to communicate. For a channel to be effective, you must pair it with appropriate messaging, and for that message to be well received, it must reflect the appropriate stage in the conversion funnel your customer is currently in.

To demonstrate this mismatch, consider what would happen if you try to intercept someone low in the funnel who is researching graduate schools by offering them a 20 percent discount if they enroll today. Or conversely, what will happen if you are an e-commerce website that sells batteries and you spend the majority of your budget writing content that positions you as a battery expert or worse, you begin flooding Twitter and LinkedIn with battery discount codes. Chances are good that St. Elmo Lewis would not approve.

A decade ago, building a website was difficult and expensive. WordPress didn’t exist, nor did the tens of thousands of free plugins and low-cost design themes that can be installed at the click of a button. Today, when someone creates a “brochureware” website or blog, there’s a good chance they’re starting with all of these resources already assembled. The job that remains is to simply integrate and customize.

The same is true of just about any Web application you may be looking to build. There is a plethora of open-source and hosted platforms that make it possible to setup well-designed, and even enterprise-grade, solutions for e-commerce, customer relationship management, and just about any software model you can describe, for a fraction of the time and cost of what was needed before. Cloud-based data and service APIs, meanwhile, are available for just about everything you can think of, often for a low monthly fee. Or in the case of Google Maps, free in many cases.

The net result of all of this inherited innovation is a better quality product for considerably less time and cost, as much as 5 to 10 percent of the prior cost, in fact. A typical e-commerce platform would have cost $100,000 to build in 2003, but it is now possible to build something comparable for $10,000 or less. And for the smaller online retailers who don’t require deep customization and don’t want the hassles of running their own technology stack, it’s possible to set up a hosted online store through Shopify, Volusion, or Magento Go for as little as $15 per month and a couple of hours of setup.

How did we get here so quickly? In one word, commoditization. In a 2003 Harvard Business Review article, Nicholas Carr boldly asserted that, “It is difficult to imagine a more perfect commodity than a byte of data. As information technology’s power and ubiquity have grown, its strategic importance has diminished.” To the ire of the IT leaders of the time, Carr argued that information technology is no different than technologies that had come before it, and it would see the same fate. Consider the jet engine, which was the “high tech” of its day and very expensive to build, employing many of the world’s best engineers at high salaries to develop. Today, that problem is solved at a commercial level, and it is just one of the many parts assembled by airline manufacturers who inherit the technology and build products around it. That is where the market is in the aerospace industry today.

As we witness the solving and inevitable commoditzation of an increasing number of software challenges, we are seeing an explosion of new Web and mobile applications in its wake. Start-ups and hobbyists alike are taking advantage of the increasingly powerful inherited technology stack in large numbers. NetCraft estimates there are approximately 15 times more active Internet host names today than a decade ago and there are now 900,000 apps in Apple’s app marketplace, a feat accomplished in the last 5 years alone.

In the midst of this explosion, we are also seeing capital reach more early-stage ventures than ever before, having a further amplifying effect. Accelerator programs like Silicon Valley-based YCombinator are providing mentorship and seed funds to scores of new start-ups every quarter in exchange for a small equity stake. They also prepare these early stage start-ups raise additional funding at the end of the program.

This approach has allowed accelerators to play the odds across a spread of big idea start-ups, without having to shoulder the risk of investing too heavily in a failed business. Because this approach has proven out so well, there has been an explosion in start-up accelerator programs across the United States since 2005, with an estimated 200 to 300 programs now operating across the country.

The implication of all of this activity for technology start-ups should give prospective founders pause. The fundamental challenge a decade ago was technical in nature. The technological and financial barriers to entry limited competition and required engineering wizardry both for the development of the platform and even to master the available online marketing channels available at the time: SEO and paid search.

Now, with many of the technical challenges behind us, the prevailing problem is competition. No matter what your idea for a website or an app, there’s a good chance you’ll find 10 other start-ups who are already in the market, and a couple of those are likely even funded and already on the ground running. Simply building another great product in this climate is not enough. It is time for technology entrepreneurs to begin developing a deeper appreciation for the art of marketing and the nuance of strategy, if they hope to compete in this maturing marketplace. The objective in this new world is to connect with customers and solve their problems through the use of technology, not innovating the technology itself.